Buy-Sell Agreement Trigger Events
Written by Chris Mercer on January 11, 2010
Buy-sell agreements are designed to accomplish one or more of the following objectives from
one or more of several viewpoints: the corporation, the employee-shareholder, the non-employee
shareholder, and any remaining shareholders. The buy-sell agreement provides for what
happens to the shares of owners who leave, for whatever reason, whether favorable or
From the corporation’s viewpoint, the agreement may prevent the departing shareholder from
retaining his shares. By requiring a departing shareholder to sell his or her shares to the
corporation, the corporation and remaining shareholders eliminate any potential for conflict over
future corporate policies with the departed shareholder. They also eliminate the potential for the
departed shareholder to benefit from future success of the business created by the remaining
shareholders. Finally, the agreements prevent a shareholder (or his or her estate) from selling
shares to “undesirable” parties, enabling the remaining shareholders to decide who the next
shareholder will be, if any. These reasons for buy-sell provisions apply to virtually all trigger
We use “QFRDD” to denote common trigger events for buy-sell agreements.
If you think about the events suggested by QFRDD, none of them are very pleasant to talk about,
particularly to a group of shareholders who may have just come together for a common business
purpose. In fact, circumstances could be such that the shareholder most affected by a trigger
event has a proverbial gun to his or her head. In the alternative, the company may perceive that
it has a gun to its head in order to fulfill the repurchase requirements of a buy sell agreement.
Think of QFRDD to remember.
• Q – Quits. A buy-sell agreement may provide a mechanism for shareholders who leave a
business to sell their shares to the corporation or other shareholders. Shareholders may quit under
a variety of scenarios, some of whi